Rodziah Ismail Ticker's Blog

Wall Street stocks fall…and debt worries

Posted in Economy, International, Politics by rodziahismailticker on February 9, 2010
February 9, 2010

Dow Closes Below 10,000 for First Time Since Nov. 4


The Dow Jones industrial average, one of the most watched metrics of the financial world, dipped below the 10,000 threshold on Monday, delivering a psychological setback as investors sought to overcome fears of a faltering global recovery.

At the close of trading on Monday, the Dow settled at 9,908.39, its lowest close in three months.

Lingering fears over a debt crisis in Europe helped trigger the Dow’s fall. As several countries across the Atlantic grapple with swelling deficits, investors spent Monday trying to gauge how seriously American banks would suffer if European governments could not pay back their debt.

Analysts said the Dow’s drop below 10,000 probably did not mean much for the future of the stock market, but they noted it had a deeper psychological effect for Wall Street.

“Investors and traders find solace in 10,000,” said Jeffrey A. Hirsch, editor of The Stock Trader’s Almanac. “While it may not be important technically, falling below that level indicates that the whole economic picture is not as rosy as everyone had thought.”

The 10,000 level, first reached in 1999, has proved to be one of the hardest to sustain as economic growth has slowed over the past decade.

The Dow’s surge beyond the 10,000 in November was considered a symbol of the strength of the recovery, coming in the midst of a high-powered rally for stocks. But now, as the financial world attempts to regain its footing following Europe’s debt woes and broader concerns about the pace of recovery, investors worry it may take some time before the market can put 10,000 behind it.

It was an up-and-down day for Wall Street as investors sought to undo some of the damage of last week’s searing losses.

The broader Standard & Poor’s 500-stock index fell 0.9 percent, and the technology-dominated Nasdaq was down 0.7 percent.

Jitters over the health of the global recovery lingered. Investors were busy predicting the effects of huge deficits in countries like Greece, Spain, and Portugal on financial institutions in the United States, which could be vulnerable to losses on foreign loans.

Traders seemed skeptical of reassurances over the weekend from the Group of Seven finance ministers, who pledged to closely monitor the situation in Greece but provided no firm plans for reining in huge deficits in Europe. In addition, Treasury Secretary Timothy F. Geithner expressed confidence on Saturday that Europe could handle the crisis in Greece, which is scrambling to pay off mountains of debt from years of carefree spending.

“You can tell investors there’s no contagion, but it doesn’t matter, because people start to think there’s more than one cockroach,” said Thomas J. Lee, chief United States equity strategist at JPMorgan Chase. “Right now, it’s still a little wait and see.”

Bill Stone, chief investment strategist for PNC Wealth Management, said traders had grown nervous that a default in Greece could ripple through global credit markets and make the cost of lending extremely high. He said the European situation had brought back memories of the collapse of the United States housing market, and how it brought the broader economy down with it.

“People worry that this is the straw that breaks the camel’s back again,” Mr. Stone said.

The cost of insuring debt eased in Greece and Spain on Monday, suggesting that investors were more confident that those nations would be able to repay their debt. It continued to rise in Portugal.

Overseas, markets in Europe were higher after a week of wild swings. The FTSE 100 in London closed 0.62 percent higher, the CAC-40 in Paris climbed 1.22 percent, and the DAX in Frankfurt rose 0.93 percent. Stock markets in Portugal were down, while Spanish markets posted gains.

In Asia, stocks were lower overnight. The Nikkei in Tokyo fell more than 1 percent, and the Hang Seng in Hong Kong shed 0.58 percent.

The euro remained near a nine-month low, trading at slightly less than $1.37, amid concern that euro-using countries would have difficulty selling bonds to finance their debt.

Oil, which fell 7.5 percent over two days last week, was up modestly on Monday, climbing 0.4 percent to $71.44 a barrel.

The market has declined now for four consecutive weeks, stirring talk that it might be due for a correction of 10 percent or more. Analysts expect volatility to continue this week as investors weigh the fallout of Europe’s debt situation. There does not appear to be much on the calendar this week with the potential to sway markets significantly: economic data is light, and the flood of fourth-quarter results from companies is abating.


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